True or false? Five myths and truths about the International Monetary Fund
The involvement of the International Monetary Fund in the loan deal agreed with Greece means painful measures with wage and pension cuts mainly in the public but also in the private sector. On the other hand, it also reassures foreign bond-holders by making debt rescheduling unlikely, as well as protecting bank deposits in Greece. As for the rhetoric about the loss of sovereignty and the prevalence of American-style capitalism and neoliberal extremism, it is more fantasy than reality… 1) Deposits in bank accounts are at risk. Myth The international organization offers valuable funding and protection of government bonds, thus safeguarding the banking system as a whole from market pressures. In no instance of IMF intervention has money in bank accounts been lost. In the case of Argentina, the government did in fact freeze bank accounts, but this was done to prevent capital flight, as the government devalued the peso, which until then had a fixed exchange rate with the dollar. 2) A rescheduling of debt is imminent. Still a possibility This has apparently been discussed within the government and certain officials have spoken publicly about it. The involvement of the IMF would appear to make such an eventuality less likely, but it cannot be ruled out. Even during negotiations between Greece and the IMF, foreign banks published assessments concerning debt rescheduling, prompting IMF head Dominique Strauss-Kahn to clarify that the rescheduling of Greek debt was not on the cards. However, it cannot be ruled out completely. 3) IMF technocrats will «replace» the government. Myth As part of the deal with the IMF and following negotiations with Athens, the two sides will draft a letter of intent, in which the Greek government will outline the measures it will take in exchange for IMF funding. The role of IMF officials is to monitor and verify Greece’s implementation of the agreement, so as to approve the installments of the loan. 4) The IMF is an instrument of American capitalism. Myth Even though it is based in Washington, the head of the IMF is European. For decades this has been a tacit agreement between Europe and the United States. In fact, some Republicans consider the IMF as an instrument of Europe and, under the leadership of a French socialist like Strauss-Kahn, far too liberal. This was evident in the unwillingness of the previous US administration to increase IMF funding. The current director of the IMF’s European department is also a European, former Prime Minister of Poland Marek Belka. 5) The IMF has imposed tough neoliberal measures in the past. True The IMF demanded painful measures to be taken in the 1980s in Latin America and in the late 1990s in Asia. Renowned economist Joseph Stiglitz, who has served with the IMF, has revealed that the organization has been known to impose stringent and ultimately ineffective measures on several occasions in the past. Today, however, it has abandoned some of its old practices such as demands to deregulate capital flows, extensive privatization and the liberalization of markets.
